Allocation of Resources 97

to establishing a cotton-textile industry of her own.
Provinces like Assam, which at present levy import duties
on timber and other forest produce under section 39 of the
Indian Forests Act, will also be affected by such a recom-
mendation. The Indian States stand to gain, inasmuch
as Provinces will be debarred from imposing duties on
State products entering provincial territory, which some
of the Provinces seem to be contemplating.

So far as Indian States are concerned, hard facts have
got to be recognized. There is as yet no taxable middle
class in the majority of the States and indirect taxation is
the chief source of revenue. It is financially out of the
question for any of them to give up their inland customs
without receiving any compensation. The Peel Com-
mittee accordingly reported that this anomaly might be
allowed and the existing rights of the States in the matter
left undisturbed.

In relation to maritime customs, the Davidson Com-
mittee recognize that they 'find it hard to reconcile with
the ideal of a true federation the retention by any federal
unit of its own sea customs receipts5. They also realize that
there is no analogy between letting States levy inland
customs and letting them appropriate sea customs, for in
so far as the former are levied on goods from overseas, they
are an addition to the duties already paid at the ports, and
their collection by the inland States does not subtract from
the general customs revenues of the federation.

But here again principle has to be sacrificed, in view
of the fact that 'no port-owning State is likely to surrender
its customs rights, even in return for full compensation9.
The Davidson Committee propose as a compromise that
maritime States should be allowed cto retain the duties on
goods imported through their own ports for consumption
by their own subjects'. The maritime States are not likely